You might not think you need insurance to cover your things unless you actually own a home.
But ask yourself this — what would you do if your apartment burned down? How about if someone sued you because your dog bit them? Or what if your neighbor slipped on your floors while watching your cat for you?
Unless you’d be comfortable footing the bill for these things out of your own pocket, then renters insurance is a great idea. But it’s important to understand how renters insurance works so that you get the right policy for you.
After all, when it comes time to use the policy, you want to make sure it covers what you need.
What is renters insurance and how does it work?
Renters insurance works almost exactly the same as homeowners insurance.
The big difference with homeowners insurance vs renters insurance is that renters doesn’t cover the actual building that you live in. That one’s on your landlord.
Instead, here’s what a renters insurance policy covers:
This is what most people get renters insurance for. This covers all of your personal belongings — your clothes, your bed, your camping gear, etc. If these things are stolen or damaged in a fire, from you from outside of your home (such as if you’re on a vacation), your personal property is still covered.
Additional living expenses
Let’s say your rental burns down or suffers extensive water damage from your upstairs neighbor’s overflowing bathtub. If you need to live somewhere else temporarily during repairs, your renters insurance policy may cover these costs. Hotels aren’t cheap, after all.
If someone sues you for damage that you or your family members cause, personal liability insurance will protect you. Note that this doesn’t apply to damage caused by cars — auto insurance is whole a separate thing.
The liability coverage in your renters policy may also include other peoples costs if they get injured while at your home.
If your friend slips and injures themselves at your party or your child’s friend hurts themselves on your trampoline, your insurance may help pay for their hospital bills. It also covers your legal expenses in the event that the injured person decides to sue.
Personal liability insurance is also what protects you in the event that you accidentally cause any damage to someone else’s apartment.
What types of renters insurance policies are there?
The most common type of renters insurance policy is an Actual Cash Value policy. This means that any claims you need to make, such as for stolen property, will be paid out by according to what your things are actually worth as used items.
If you need to make a claim, you may not be able to fully replace everything you lost with an Actual Cash Value policy.
Alternatively, you could pay a little bit more for a Replacement Cost Value policy. This one will pay out the cost to buy new items to replace the ones that you’re filing a claim for.
In general, Replacement Cost Value policies are better. That’s because the cost to buy new items is always higher than the value of the items you currently have. It’s the difference between buying a pair of pants new versus used at a thrift shop.
What doesn’t renters insurance cover?
Like homeowners insurance, renters insurance policies have many exclusions. It’s a good idea to read through the fine print so that you know what these hidden “gotchas” are, even though it’s not the most fun thing in the world.
Typically, renters insurance policies don’t cover damage from floods or earthquakes. If you live in a flood-prone area, you can purchase special renters flood insurance separately for the government to protect your things.
Renters insurance often doesn’t cover damage from bedbug infestations, which are increasingly on the rise. Unfortunately, many renters insurance policies also exclude injury claims from certain furry pals, such as pit bulls and rottweilers. It’s also common for renters insurance policies to exclude expensive items like tech equipment, fine jewelry, or designer clothing.
Your insurance provider may still offer coverage for these items, but you may need to purchase additional coverage — called a rider — in order for these things to be covered.
How much renters insurance do I need?
There are two approaches to figuring out how much renters insurance you need.
On one hand, you can throw a dart at the board and guess a random number. But this isn’t recommended, since you may not get the coverage you need for personal property.
Instead, most experts recommend taking an inventory to find out how much your stuff is actually worth.
To take inventory, simply go through your place. For anything you want covered, record the following things:
- What the item is, the make, model, serial number, and where/when you bought it
- Take pictures of the item
- How much the item is worth (if you have the receipts or credit card statements, or you can look it up online)
An easy way to organize all this information is in a spreadsheet. When you’re done, simply tally up the total value of your things and you’ll know how much coverage you need.
It’s also a good idea to save your inventory in multiple places, including uploading it to the cloud in case anything happens. This is valuable information that you can use to provide proof in case you ever need to file a claim.
For liability coverage, most renters insurance policies come with $100,000 in coverage. Typically, this is enough for renters. But if your assets are worth more than that amount, you should really consider raising that limit.
Your policy limit should always match the value of your assets. To figure that out, simply work out the value of your assets (property, investments, and savings). If your current policy isn’t enough you should consider consider increasing the liability limits in your policy.
How much does renters insurance cost?
The cost of renters insurance is generally split up between two expenses: the premium and the deductible.
A premium is what you pay to have coverage, even if you don’t use the insurance. You can pay your premium monthly, semi-annually, or annually, depending on your insurance provider.
Your renters insurance premium will depend on several things:
- How much coverage you want
- If you want any riders to cover other things like earthquake damage, furs, jewelry, etc.
- Which provider you choose
- Whether you’ve had any claims in the past
- How much your deductible is
- Whether you choose an Actual Cash Value or Replacement Cost Value policy
In general, however, renters insurance is quite affordable. Most people can expect to pay between $15 and $30 per month.
If you need to make a claim, a deductible is how much you’ll need to pay out of pocket before your renters insurance kicks in. Most renters insurance policies come with a deductible of either $500 or $1,000. The lower your deductible, the higher your monthly premium will be.
It’s recommended that you save up the deductible amount in an emergency fund. That way, if you do need to use your renters insurance, you’ll have enough money to pay for the deductible until your insurance kicks in.
Renters insurance buying tips
Once you know how much coverage you need, buying renters insurance isn’t that difficult.
The best way to find insurance is to start with your current insurance provider to see if they offer a multi-policy discount.
You’ll also want to shop around for quotes so that you know you’re really getting the lowest possible rate for what you need.
Finally, make sure to read the fine print. Consider whether you need additional coverage or riders for anything that’s not covered. It’s never fun if you need to file a claim, but following these steps can make it a lot less stressful.